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Vanguard closes Capital Value Fund to new accounts

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Vanguard is implementing a cooling off period for its Capital Value Fund by closing it to new shareholder accounts.

The USD742m fund returned 68.5 per cent through the first nine months of the year.

Assets in the fund have more than tripled since the end of February as a result of market appreciation and strong cash inflows.

“Despite our efforts – at both a company and an industry level – to educate investors about the perils of performance-chasing, we continue to be concerned about this behaviour,” says Vanguard chief executive Bill McNabb. “Closing the fund for a cooling-off period serves two purposes. First, it protects existing shareholders from higher transaction costs that can result from short-term-oriented investors moving in and out of the fund. Second, it protects prospective investors from themselves, as high-performing funds will almost certainly drop off at some point.”

Vanguard employed similar cooling-off periods for its High-Yield Corporate Fund in 2003 and its Health Care Fund in 1999. The funds reopened after six months and ten months, respectively, as investor interest subsided and cash flows moderated.

The fund will not accept new accounts from retail shareholders, financial advisers, institutions, or retirement plan sponsors. Existing shareholders, including participants in defined contribution plans that already include the fund as an option, may continue to invest in it.

In August, Vanguard closed another stock fund and extended the limits on additional purchases in two other funds, both already closed to most new accounts.

Vanguard PrimeCap Core Fund ceased accepting new accounts from most retail clients and capped additional purchases by most existing shareholders at USD25,000 annually. The other two funds — PrimeCap Fund and Capital Opportunity Fund — placed a USD25,000 annual cap on additional investments by certain clients who had not previously been limited in their share purchases.

In total, seven Vanguard funds are currently closed to most new accounts: Admiral Treasury Money Market Fund, Capital Opportunity Fund, Capital Value Fund, Convertible Securities Fund, Federal Money Market Fund, PrimeCap Fund, and PrimeCap Core Fund.

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